Survey Finds Loyalty Efforts Poor

An informal survey of Fortune 200 companies, conducted by Focal Point Inc., Herndon, VA, found that a majority of major corporations that use loyalty programs as part of their marketing strategy do not use programs to differentiate themselves from the competition.

"It really did surprise us in our survey that people didn't seem focused on this issue of differentiation," said Tom Belford, a principal with Focus Point. "We think that is a big mistake. If you are not trying to accomplish that, and you're coming up with a copycat program of some sort, all you have really done is add to your operational complexity and add to your cost structure."

Focal Point received 29 responses to the survey, which was not intended to be a scientific study of loyalty programs but a snapshot of how they are used in a variety of industries. Fifty-five percent of the respondents said it's extremely difficult to differentiate a program from that of competitors. Forty-one percent said it's difficult not to be tempted to let the discounts of the program become the driving force.

Ironically, top on the list of reasons for launching a loyalty program was to distinguish and add value to the company's brand and marketing strategy. Second was to target the high-end customers and keep them loyal to protect the brand from competitive threats. Third was cost. Many respondents said it's cheaper to retain the customers they have than it is to gain a new customer. Last on the list was to maintain the company's current market share.

"What a lot of folks do is try to add value to their program, while neglecting their brand identity, by offering other benefits through avenues people have access to, be it a credit card or car rental," said Belford. "You have to stay true to your brand and the promise inherent in it."

According to Belford, the survey showed that many loyalty programs have deteriorated into "bribe programs," which feature reduced pricing and expensive hard benefits. Many are easy to copy and can be improved by the competition while not building the relationship with the brand.

Belford cited the airline industry as making frequent flyer miles a price of entry for any upstart airline. An airline cannot be in the business unless they have a frequent flyer program. In the last 15 years, all of the major airlines have developed a frequent flyer program.

"What airlines have done is saddle themselves with a whole new set of bureaucratic requirements that add to the cost of fulfillment and reporting schemes," he said. "Show me how any airline loyalty program is giving competitive superiority to an airline; they all have loyalty programs and all they can do is live with them at this point. Somebody is going to step forward and build a better mousetrap."

In the survey, the majority of the respondents said the most difficult aspect of developing a loyalty program was to create acceptable metrics. Also, high on the list of challenges was proving the return on investment.

"Loyalty programs should support higher profit margins instead of adding cost to services," Belford said. "The Ritz-Carlton Hotel is not competing as a low-end provider, therefore they are using their program to add other perceived values for their high-end customers. Long-distance carriers have been using their calling plans as a way to attract customers who are shopping for the best deal. Once you have done that you are only competing on the basis of discounts, and that is a terrifically wrongheaded way to go."